The wrangle between the board of Brisbane-based ASX-listed property investor Cromwell Property Group & Singaporean investor ARA Asset Management Pte Ltd continued this week with an offer by ARA which would take it & a supporter to majority ownership, against continuing efforts by the Cromwell board to denigrate the ARA tactics.
The Cromwell board argues ARA is trying to buy control on the cheap.
The scrap affects New Zealand – Cromwell is 50% owner of local funds manager Oyster Property Group Ltd.
The longer-standing NZ connection is that Cromwell was the Australian offshoot of NZX-listed Cromwell Properties Ltd, established in the 1980s by the late Graeme Bringans (later called Brierley Cromwell).
Separately from the Cromwell scrap, ARA has acquired a majority stake in Australian developer Logos Property Pty Ltd this year, manages listed & unlisted reits and private real estate & infrastructure funds in 28 countries and had $S88 billion in gross assets under management at the end of 2019.
Logos entered New Zealand in 2018, when it bought a Wiri site, and bought a second development site, in Otahuhu, in April this year.
ARA’s bid for control at Cromwell comes with some curious aspects. The offer doesn’t have a closing date and, although ARA issued its bidder’s statement on 21 July, it hasn’t yet updated the ASX on any increase in its holding.
The ARA perspective
ARA said in its bidder’s statement it had been trying to bring about change at Cromwell for over 12 months: “It now appears that, despite the ARA Group’s many efforts to warn fellow Cromwell securityholders and to secure appropriate representation at board level, the status quo has continued, contributing to a clear & significant deterioration in the value of all our Cromwell securities.
“The Cromwell board has now put securityholders in a position where the company’s balance sheet is heavily exposed to Polish shopping centres, gearing is above their own target, costs continue to rise and earnings/share & distributions are likely to continue to fall.
“Furthermore, in recent days, Cromwell has announced a foray into investment into European data centres, a sector in which it has no experience & no point of difference. The latest move only serves to confirm the erratic & undisciplined strategy of the current management team & board.
“The ARA Group has been left with no choice other than to make this offer, to fix Cromwell & transparently return it to future prosperity.”
As at 31 December 2019, Cromwell had a market capitalisation of $A3.1 billion, a direct property investment portfolio valued at $A3.2 billion and total assets under management of $A11.9 billion in Australia, New Zealand & Europe.
As of Monday this week, Cromwell said ARA held 24.083% of Cromwell’s issued capital while the Tang Group, also from Singapore, held 17.56% for a combined 41.64%.
Cromwell calls bid “opportunistic”
On 23 June, ARA announced its intention to make a proportional off-market takeover bid to acquire 29% of all Cromwell stapled securities it didn’t already own. The next day, Cromwell’s board said it considered the proportional offer “an opportunistic attempt to gain control of Cromwell without offering to acquire all stapled securities or paying an appropriate control premium to Cromwell securityholders”.
After failing to get its nominee, Dr Gary Weiss, on the board at the annual meeting last November, ARA forced an extraordinary shareholder meeting on 30 March but again failed to get Dr Weiss elected.
The board said Dr Weiss was “conflicted, overcommitted, not independent”.
Dr Weiss, a longtime corporate raider, has been a director of numerous entities in the realm created by Sir Ron Brierley, including Industrial Equity Ltd, Guiness Peat Group plc & Ariadne Australia Ltd.
The Cromwell board said that, when ARA did have a nominee on the board, “ARA tried to change Cromwell’s strategy for its own benefit. The proposed changes included selling Cromwell-owned assets, that pay a reliable income to securityholders, to ARA.”
Cromwell added: “ARA is a competitor to Cromwell. Its ongoing hostile attacks are part of a deliberate strategy to gain control of Cromwell’s board and change the strategy to benefit itself without paying the appropriate value to all securityholders.”
Arguing that shareholders should ignore ARA’s “incorrect material” for the March meeting, Cromwell told shareholders: “ARA has sent you its own notice of meeting & proxy form asking you to support Dr Weiss’s election on the basis of information that is incorrect. Same as last year, ARA has deliberately tried to make its proxy form look as though it is from Cromwell to confuse securityholders. ARA’s selection of EGM venue, and how it is dealing with proxy forms, are both designed to reduce meeting attendance and exert control over the voting process.”
Dr Weiss’s attempt to join the board was defeated 1.09 billion votes to 753 million (59:41%).
ARA lodged its bidder’s statement on 21 July. In response the same day, Cromwell’s board issued a statement calling on shareholders to take no action and “ignore ARA’s opportunistic proportional takeover offer & misleading statements”. Cromwell alleged ARA’s bidder’s statement “contains material omissions & fails to disclose ARA’s true intentions”.
That’s a statement made in anger & a hurry – very hard to “contain omissions”.
ARA’s current offer is A88.125c/security, reduced from the A90c June offer price to take account of Cromwell’s June distribution of 1.875c/security. Cromwell said that represented a 15.3% discount to Cromwell’s $Q1.04/ security net asset backing at 31 December, a discount of at least 10% to Cromwell’s estimated pro forma NTA as at 30 June and a “negligible” premium of 1.3% to Cromwell’s last close price before the offer in June, A87c.
The Cromwell board said: “If the proportional offer is successful, ARA [& Tang] would hold about 46% of Cromwell stapled securities, which will provide it with effective control, the likely ability to replace the Cromwell board (as is its stated intention) and influence strategy. ARA will have paid no premium to Cromwell securityholders to secure the substantial benefits that will accrue to ARA through this control position.”
Cromwell continues European investment
Meanwhile, Cromwell has continued with its investment programme. On Wednesday, Cromwell & Korean real estate investment manager IGIS Asset Management said they’d signed binding agreements to buy 7 DHL logistics assets in Italy for €52.5 million. Settlement is scheduled for September.
Cromwell said it would fund its share from existing cash reserves. It intends to use these assets to seed a new €4-500 million Cromwell European Logistics Fund. Cromwell has also recently opened a Polish retail fund and said on 13 July it had a data centres fund planned.
ARA, 23 June 2020: Proportional takeover offer for Cromwell Property Group
ARA, 18 March 2018: ARA to acquire 19.5% interest in Australia’s Cromwell Property Group
Cromwell Property Group
Cromwell: ARA Asset Management & Tang Group relationship & ARA proportionate offer
Cromwell, 24 June 2020: Cromwell directors intend to reject ARA bid
Cromwell, 17 March 2020: Dr Weiss not a suitable candidate for Cromwell’s board – substantial overcommitment & conflicts
Earlier stories on this website:
29 June 2020: Cromwell Property rejects Singaporean raider ARA & its rep Gary Weiss, and the fight ramps up
15 April 2020: Backgrounder: International industrial property expansion – Logos, ARA, Goodman links, Ivanhoé Cambridge, Plenary Americas, CBRE Global Investors, Toll & Japan Post
12 March 2018: Singapore reit manager ARA buys 19.5% Cromwell stake
13 December 2017: Cromwell makes placement to Singaporean investors in its new European reit
6 June 2014: Cromwell buys half of Oyster, McKellar to chair it
28 September 2009: Brisbane trust with NZ connections promotes new syndicate
Attribution: Cromwell & ARA documents.